California Lawyers Association
Spotlight on Ethics: How to Recognize When You Have ‘Too Many’ Clients
By Karen M. Goodman
We love to feel wanted. Nothing is better than getting that phone call from a prospective client asking you to represent him, his family and his numerous entities in defending a breach of fiduciary duty case. You are envisioning days of depositions (with all of those billable hours) and looking forward to a high profile trial where your client’s good faith attempts to “help” the plaintiff can be vindicated in spite of the numerous explosive allegations of self-dealing. Before you agree to represent all of these defendants, you need to hit the pause button and evaluate whether you can or should represent them all.
As a threshold matter, review the complaint carefully. The complaint should identify the alleged roles of each of the defendants. As a lawyer, you need to immediately analyze whether the multiple clients are adverse to one another. Do not simply ask the clients if they are “adverse” to each other in the initial consultation meeting. Generally, the multiple defendants are initially united in their rage against the plaintiff and will tell you “they are all on the same page.” A directly adverse conflict amongst these multiple clients can arise in a number of ways. It could be reflected in a factual “adversity” such as one client forging a transaction document purportedly for another client. Another example could be where one client concealed material information from another client during the events in question. Rule 1.7(a) provides that a lawyer can only represent multiple clients who are directly adverse to one another if all of the clients provide their informed written consent. Bear in mind that if one client was truly kept in the dark during the events at issue, “informed consent” from the ignorant client may be impossible.
A second type of conflict in representing multiple clients occurs when the lawyer’s ability to vigorously advocate for one client is impaired because of the interests of another client under Rule 1.7(b). When there is a “significant risk” that a lawyer’s representation will be “materially limited” by the lawyer’s duties to another client, then all clients’ informed written consent is required before the representation can be undertaken.
Even if the clients are willing to sign conflict waivers, such “tainted” representation can only be undertaken if the lawyer reasonably believes that the lawyer will be able to provide “competent and diligent representation” to all of the clients under Rule 1.7(d)(1). From a risk management view, the safer course is to refer the other defendants to competent lawyers you are confident you can work with collaboratively.
In an effort to avoid being tainted (and potentially disqualified from any further representation) because you acquired confidential information from a party who is directly adverse to your client, avoid the “joint client meeting” with all of the prospective clients until you have investigated the relationships amongst the multiple defendants. Meet with the “lead defendant,” and ask questions about the relationships amongst the defendants and the defendants’ relationships with the plaintiff before undertaking to draft conflict waivers for the prospective “other clients.” Understand the mechanics of the events that led to the dispute and the roles played by each of the defendants. Understand who benefited from those events and who did not.
While you are not absolutely prohibited from representing clients with “conflicting interests,” you are required to obtain the “informed written consent” from each of these clients before undertaking the representation of all of them. To do so, you need to describe in detail the facts that would create a significant risk of limitation on your ability to represent the multiple defendants jointly. This includes that nothing can be hidden from one client to another, that you cannot cross-examine another client (even if it helps another one of your clients), and your advocacy is limited on issues where one client may have relied on the other in good faith. The critical question is whether you can make an impartial evaluation of whether there is a risk your representation of multiple clients will materially interfere with your professional judgment, and then provide each client with a frank disclosure of any risks and adverse consequences of a joint representation. For the entity defendants, you need to remember that the organization is the client (as specified under Rule 1.13) and recognize that shareholders or other constituents of the organization may not be acting in the best interest of the organization.
By all means, make that disclosure of potential friction amongst the clients to all of the prospective clients before you have “agreed” to represent all of the defendants. Although the conflict disclosure rules do not require it, it is good practice to inform each of the clients that they have the right to consult with an independent lawyer before they consent. Similarly, the clients should know that they have the right to not consent and to choose their own lawyer.
If at the outset of the proposed representation, it is clear to you that the interests of the defendants are not aligned, then you should recommend that separate counsel be retained immediately. Although you might conclude that you can competently and diligently represent each client when their interests are clearly not aligned, it would probably be wiser to recommend that separate counsel be retained immediately.
Assuming that all of the clients’ “consent” was based upon full disclosure of the various ways in which your independent judgment and loyalty may be limited, be very aware of subsequent developments during the course of litigation that will require that separate counsel be retained. Conflicts that weren’t apparent at the outset of the relationship often arise during depositions. This could come about in the instance where one of the defendants realizes that his signature was forged on a transaction document. This could come about when there is a discovery of materially inaccurate financial statements prepared at the request of one of the defendants and relied on by the other defendants. This could come about when one defendant discovers electronic files in her possession that are materially harmful to another client. The comments to Rule 1.7 provide that if there is a material change in circumstances, new disclosures are required by the lawyer and where the conflict has manifested itself, each of the clients must consent in writing to the continued representation by the lawyer.
Frequently, the adverse interests amongst the clients require the different defendants to retain separate counsel in order to maximize the defense objectives and to allow each defendant to be vigorously represented. Joint defense agreements where the lawyers representing the multiple defendants can discuss common strategy are a far preferable way to work around these difficult “conflict” issues instead of a single lawyer attempting to represent multiple clients with adverse interests. The duty of loyalty to each client must be objectively analyzed before and throughout the representation.
Karen Goodman is the principal of Goodman Law Corporation, a trial boutique practice; she is also a certified specialist in legal malpractice law and vice-chair of the CLA Ethics Committee. This commentary on an ethics issue is the opinion of the author and is not intended to be an official opinion of the CLA Ethics Committee.